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Financial Markets Update

1/9/2017

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When I opened my wallet to pay for parking today, I realized that I fell short by a few bucks.
I am either aging and my memory is taking a beating, or I spent more than I realized during this holiday season. According to personal finance company, MagnifyMoney, 2016 has seen more consumer spending and an increase in debt. The average consumer took on $1,003 worth of holiday debt up from $986 in 2015, a 1.7 percent increase. Holiday shoppers came out in droves this year; 154 million people shopped during Thanksgiving weekend, up from 151 million in 2015. The biggest holiday shopping day was Dec. 17, when 156 million people were out spending. Consumer spending shows confidence in the economy, however, taking on too much debt is certainly a problem, which presents an interesting conundrum the U.S. economy and the general public face in 2017.

The stock markets, though, didn’t look puzzled as they rose throughout the holiday during the shortened week and started 2017 on a positive note. Investors appeared to welcome some good economic data and as they looked forward to healthier upcoming quarterly earnings reports. The Dow Jones Industrial Average, which had outperformed strongly since the November elections, just missed crossing the celebrated 20,000 milestone as the benchmark reached 19,999.63 late last Friday before falling back some. Friday brought the closely watched monthly payrolls report, which showed moderate job gains in December and a welcome rise in wages after November’s decline. Stocks did not appear to react strongly to the initial release of the report but rather gathered momentum later in the day thanks to strength in Apple, which has a large weighting in many major indices, after a Canadian regulator announced that it was closing an investigation into anti-competitive practices by the tech giant.

In bond market news, last week dovish Fed minutes helped push yields lower. The minutes revealed that uncertainties about future fiscal policy weighed heavily in policymakers’ discussions of the economy and the path of monetary policy. While the Federal Reserve will watch for other signs of improvement, this report supports the committee's view that the economy can handle two to three short-term interest rate increases in 2017 as inflationary pressures rise heading into the new year. More importantly, as wages accelerate, consumption could rise, fueling economic growth.

Some other market-movers showed Global manufacturing added to the upbeat expectations. The U.S. manufacturing sector saw its strongest growth in two years in December, according to the Institute of Supply Management's purchasing managers index. The employment situation showed initial claims in the December 31 week are strikingly low, down 28,000 to 235,000. The drop pulls the 4-week average down 5,750 to 256,750 a level that is still slightly above, not below, last month’s trend. The nation's trade deficit widened sharply in November, to a higher-than-expected $45.2 billion and well up from a revised deficit of $42.4 billion in October. Exports fell 0.2 percent in November while imports rose 1.1 percent.

The big economic indicators coming up this week are:

Wednesday: EIA Petroleum Status

Thursday: Jobless Claims

Friday: Producer Price Index, Retail Sales

Looking forwards to a healthy and productive new year, and we thank you for your business.



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January 06th, 2017

1/6/2017

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Conventional 5% from Effective Mortgage Company
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Market Commentary

1/4/2017

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Mortgage rates improved in the last week of 2016 as equity markets pulled back from recent highs when the Dow Jones Industrial Average failed to break 20,000 for the first time, despite coming very close the week prior.

The holiday shortened week ahead will have plenty of data for markets to digest, with Friday’s Employment Report the most important, as usual. Fed watchers continue to price in more rate hikes for 2017, with Fed Funds futures now trading at a 12.4% chance the next increase will be in February, with March at 34.8% and May at 47.8%. Most now believe that the Fed will increase rates twice this year as inflation projections continue to increase amidst continuing improvements in the labor market.

Economic Calendar for the week of 01/03/2017 to 01/06/2017:
Tuesday: ISM Manufacturing, Construction Spending

Wednesday: MBA Mortgage Applications, FOMC minutes from the December meeting
Thursday: ADP Employment Change, ISM Services, Initial Jobless Claims, Continuing Claims
Friday: Non-Farm Payrolls, Unemployment Rate, Trade Balance, Factory Orders, Durable Goods Orders

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Financial Markets Update

1/3/2017

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While everyone was preparing for New Year’s Eve, investors were patiently waiting to celebrate the Dow reaching 20,000. It seemed to be a probable goal by Christmas, but, the last week of the year kept investors waiting to release the balloons and pop the bubbly. The Dow cruised to a high of 19,974 on December 20 and then stalled. On Wednesday, the Dow dropped more than 100 points to close at 19,840. The downward trend continued throughout the week as the year closed out at 19,762.60.

Meanwhile, Consumer Confidence grew in December reaching 113.7 per the index, up from a revised 109.4 in November. This was the highest level since 2001. Experts attribute this rise to an improving U.S. economy and anticipation of a Trump presidency.

While Trump’s victory may have been positive for stocks and business, it has hurt Pending Home Sales. Before the election, mortgage rates were around 3.6 percent. Since the election, rates have surged to 4.4 percent. With rates moving almost a point, that is adding, roughly an extra $100 a month payment to a $200,000 mortgage. Combined with a shortage of inventory, the jump in interest rates have led to Pending Home Sales dropping 2.5 percent in November. However, with steady growth in the economy and positive job market prospects, many families have the renewed confidence to buy a house. In addition, home prices continue to rise. The S&P Case-Shiller Index rose .6 percent in October and is 5.1 percent higher for the year. Cities in the west, such as Seattle, led the increase while New York showed the biggest decline, down .2 percent from the previous month and only 1.7 percent higher for the year. Builders have increased production to meet the rising demand for housing which could in turn slow down rising prices.

The U.S. Trade Gap increased 5.5 percent in November, according to the Commerce Department. This was a higher increase than anticipated and the highest reading since 2008. Exports were up 1 percent while Imports were up 1.2 percent. In addition, Wholesale Inventories increased slightly, .9 percent, in November.

Jobless Claims fell 10,000 last week as many Americans move in and out of the workforce throughout the holiday season. The four-week average of initial claims was down slightly, 750 less applicants. However, Continuing Jobless Claims rose by 63,000 to 2.1 million for the week ending December 17.

To wrap up the light news week, Chicago PMI fell 3 points in December to 54.6. The Chicago PMI is a measure of Midwest economic activity. New orders, one of the components of the index, fell 6.7 percent to 56.5. A majority of business owners expect the Trump administration to be favorable for their business.

Looking forward to the New Year and the following reports being released:

Tuesday: ISM and Construction Spending

Wednesday: Motor Vehicle Sales

Thursday: Weekly Jobless Claims and ISM Non-manufacturing

Friday: NonFarm Payrolls, Unemployment Rate, Average Hourly Earnings, Foreign Trade Balance, and Factory Orders

Thank you for your business and many wishes for a happy and very prosperous new year!

 
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